Overview: Convert Cryptocurrency to Fiat Currency

Convert cryptocurrency to fiat currency

If you have received or made money trading and investing in cryptocurrencies you will likely want to convert cryptocurrency to fiat currency at some point. The process is simple, but typically involves having multiple accounts. The process also depends on how you got your original cryptocurrencies. Continue reading to see the standard flow of funds for the following situations:

Bought them yourself with fiat currency

Received a crypto that can’t be directly exchanged to fiat

Traded to a crypto that can’t be directly exchanged to fiat

As an educational note, a fiat currency is basically any money declared by a government to be legal tender.

Bought them yourself

This assumes you purchased the cryptocurrency yourself and did not transfer it to another exchange. This is the quickest and easiest method since there is little movement of the cryptocurrency. Things get complicated when you buy BTC, transfer to another exchange, and then trade BTC for other cryptocurrencies. That will be tackled later in this article.

Example: Buying BTC, ETH, or LTC on an exchange that let’s you deposit from a bank account, such as Coinbase or BitStamp. Please note that it will have to be a cryptocurrency that can be exchanged directly for fiat.

4. Trade cryptocurrency back to fiat currency (selling the cryptocurrency)

5. Withdraw the fiat currency from the cryptocurrency exchange back to your bank account

As mentioned, this is the easiest process because everything is being done from 1 exchange. It starts to get more complicated when moving around to buy different cryptocurrencies. Here is a simple graphic of the funds flow:

Received as an Air Drop/Bounty/ICO etc.

Occasionally you may receive a cryptocurrency as a random gift or air drop. In these cases, you might not be able to just send it to Coinbase, Kraken, or any of the other big exchanges to convert directly to a fiat currency. The following steps assume that you already have an exchange account where you can sell BTC, ETH, or another cryptocurrency for fiat currency. Coinbase for example will let you sell BTC, ETH, and LTC for US dollars. You can then withdraw these to your traditional bank account.

1. Find an exchange that trades the cryptocurrency you received. CoinMarketCap is generally the go-to for this information. Search for the coin and then click their “Markets” tab to see a list of exchanges

2. Send the cryptocurrency from your wallet to the exchange

3. Trade the cryptocurrency for BTC, ETH, or any other currency you can exchange for fiat.

4. If this exchange allows for fiat conversion, then move on to step 5. Otherwise, send from the current exchange to an exchange that converts to fiat currency. An example would be sending from Binance to Coinbase. Coinbase will let you sell to fiat, but Binance does not.

5. Sell the BTC, ETH, etc. for the fiat currency

6. Withdraw fiat currency to your bank account

This one is a little more tedious and can require a couple of accounts to complete. Also, the more places you send stuff, the more transaction fees you are likely to pay. Here is a simple graphic of the funds flow for this example:

Traded to a crypto that can’t be directly exchanged to fiat

Sometimes holding Bitcoin or Ethereum just won’t cut it. This is when you stumble upon the thousands of other cryptocurrencies out there. A lot of times you will buy Bitcoin or Ethereum with fiat, and then transfer to an exchange like Binance to do some trading with your BTC or ETH. It is a straightforward process, you just need a couple of accounts in order to do so.

Example:Bought Bitcoin with fiat currency from Coinbase and then transferred to Bittrex to buy CFI tokens.

3. Trade fiat currency for a cryptocurrency (buying the cryptocurrency)

4. Send the cryptocurrency to another exchange, such as Binance

5. Trade your cryptocurrency for the one you want (BTC -> CFI in this example)

6. After you have hopefully made a profit, trade your CFI back to Bitcoin

7. Send your Bitcoin back to the exchange that allows fiat currency

8. Sell the Bitcoin back to fiat currency

9. Withdraw the fiat currency from the cryptocurrency exchange back to your bank account

As you can see there are a lot more steps involved with this method. It is also important to note that some jurisdictions consider a crypto -> crypto exchange a taxable events. Based on the simple graphic below, you could be taxed up to 3 times by the time you get back to fiat.

Summary of how to convert cryptocurrency to fiat currency

These are the 3 most common scenarios for investing/trading in cryptocurrencies and then wanting to convert back to fiat. The less movement/transactions means less chance of messing up and less in fees. Keep that in mind when you want to convert cryptocurrency to fiat currency. If you are looking for exchanges to trade BTC/ETH/etc., then check out thisreview on KuCoin and thisreview on Binance.

I skipped screenshots in this guide because there are so many places to and ways that this can be done. If you feel they would help leave a comment below and I will update this article. Also, if you have any questions about a particular exchange feel free to shoot me an e-mail or comment below!